As of June 2024, the California FAIR Plan’s total exposure was $393 billion, a 38.3% increase from September 2023. [Graph courtesy California Fair Plan]
N orth Bay businesses from manufacturers to wineries are “self-insuring” against wildfire risk to remain eligible for commercial property insurance. The term refers to a wide range of activities, including home hardening, forest fuel reduction and grazing uncultivated land. Despite the proactive undertakings, insurers who still offer policies in the North Bay have increased premiums in the last four years, typically by between 400 and 1,000%. “The revenues in the wine industry are nowhere near big enough to cover the massive cost of insurance,” says Cyril Chappellet, chairman of the board of Chappellet Winery in St. Helena. “That’s why we developed so many interlocking strategies to put out fires and prevent the spread of fire between structures.” Insurers that decide they need a rate hike, but have not yet requested one from the California Department of Insurance, may ask for one soon. Customers can expect further increases in the next few years, says Janet Ruiz, spokesperson for the Pennsylvania-based Insurance Information Institute, the national trade association for the insurance industry. “Inflation has slowed. This does not offset increases in costs to rebuild and compensate a business for loss of income when it is closed. Those two expenses have increased in the past four years because of rises in costs for labor and supplies,” says Ruiz. As businesses reduce their wildfire risk, insurers may reduce their rates. This is not occurring right now. Businesses and insurers are waiting to see how the market is transformed by the California Department of Insurance’s (CDI’s) implementation of its new Sustainable Insurance Strategy. The changes are set to impact the market by mid-2025.
One of the biggest shifts is the CDI will allow insurers to use technology that predicts catastrophe modeling. In the past, insurers could only use historical data. The CDI will also take measures to encourage property owners to leave the California FAIR Plan, aka Fair Access to Insurance Requirements, a state insurance-industry program to provide insurance to high-risk homeowners and businesses that can’t find fire coverage. The latter move is meant to draw residential and business customers back to the insurance marketplace. The CDI is concerned that the number of high-risk policies that the FAIR Plan has written threaten its solvency. In June 2024, the FAIR Plan’s total exposure was $393 billion, a 38.3% increase since September 2023. How to ‘break the bundle’ It is now common for North Bay customers to layer together multiple policies to insure a business. A winery may have a policy with one insurer for their property, a second for their equipment, a third for their vehicles and a fourth for their wine, if they can afford the last expense. In past decades, insurers offered discounts and other incentives to buy multiple types of insurance from a single carrier. Now a customer will work with a broker and multiple carriers to “break the bundle.” The California legislature could help by amending state insurance code to distinguish the terms “wildfire” and “fire,” says David Capponi, partner in Malloy, Imrie & Vasconi Insurance Services in Napa. “If insurers can treat wildfires differently from other types of
32 NorthBaybiz
December 2024
Made with FlippingBook flipbook maker